Farley Sued Over Pepperell Deal

January 19, 1990|By Pamela Sherrod.

Chicago industrialist William F. Farley, who won a hostile takeover fight last year to gain control of West Point-Pepperell Inc., has been sued by shareholders who claim he misrepresented his ability to complete the $1.56 billion deal.

A class-action lawsuit filed Wednesday in federal court on behalf of Peregrine Options Inc., a Chicago-based options trading firm, charges Farley and his firm, Farley Inc., with violating securities laws and the Racketeer Influenced and Corrupt Organizations Act by making false and misleading statements in tender offer materials about his ability to promptly purchase the remaining Pepperell shares.

``He represented that he had sufficient financing, and based on the information that has now come to our attention, it appears that the information he gave was not correct,`` Peregrine`s attorney, Charles R. Watkins, said Thursday.

``In a series of filings with the Securities and Exchange Commission and other public disclosures, the defendants stated that `as soon as practicable` after the consummation of the tender offer, they would consummate a merger between Farley and West Point-Pepperell in which the nontendering stockholders would receive the same $58 cash consideration as the stockholders who tendered,`` the suit said.

But the untendered shares have not been acquired, and the suit said it was unclear when the buyout would be completed.

A Farley Inc. spokesman said, ``The company denies that its tender offer materials or any other disclosures were not complete and accurate at the time they were made.`` He said the lawsuit was without merit.

In an SEC filing last week, Farley revealed a shaky financial foundation for the deal, admitting he was having trouble completing the purchase of the remaining 5 percent of Pepperell stock.

In the filing, Farley disclosed that his bridge loans had been extended, at higher interest rates, but said there could be ``no assurance`` that he could meet the lenders` requirements for the extension.

The filing also revealed that the $600 million Farley expected to get for Pepperell`s Cluett Peabody division would be considerably less. Some analysts estimated the sale proceeds at $520 million.

Farley had planned to use the sale proceeds to help pay for the Pepperell acquisition.

The suit claims that Farley represented himself as having sufficient financing to purchase all the outstanding shares of Pepperell when the tender offer was completed.

``Their failure to disclose financing and other contingencies which existed at the time of the tender offer and which they admit exist now was a material omission,`` according to the suit.

``Nine months have passed since the completion of the tender offer without a merger. In the meantime, the value of the West Point-Pepperell stock purchased by the plaintiff and the members of the class has plummeted, and the plaintiff and the members of the class have sustained other damages as well.``

The Pepperell stock, which is traded on the New York Stock Exchange, has fallen from the $58 a share Farley agreed to pay last March to Thursday`s $31, down 25 cents for the day.

Watkins, an attorney with Sachnoff & Weaver Ltd., said the plaintiffs are asking for a jury trial and for an injunction ordering that Farley purchase the remaining Pepperell shares.

``The question is whether there are other assets of Farley`s to be looked at to satisfy his (financial) obligations to shareholders,`` Watkins said.

The suit also seeks damages for costs related to the delay in closing the buyout, and treble damages under the racketeering law.

Pepperell and certain of its officials also were named in the suit.

Peregrine Options owns 46,800 shares of Pepperell.

Watkins said Peregrine acquired most of its Pepperell shares after Farley`s April 5 buyout of Pepperell.